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On Thursday, DA Davidson reiterated a Neutral rating on Advance Auto Parts (NYSE:AAP) with a steady price target of $45.00. Trading at $37.22, the stock has fallen nearly 15% in the past week alone, according to InvestingPro data. Analysts at the firm acknowledged the company’s mixed fourth-quarter performance, noting a strong top line contrasted by weaker profits. The decline in profits was attributed to costs associated with inventory write-downs and the liquidation from store and distribution center closures. InvestingPro analysis indicates the company may have trouble making interest payments on its debt.
The company’s guidance for 2025 remains unchanged and is generally consistent with current estimates. However, shares of Advance Auto Parts fell following the announcement of a lower-than-expected guidance for the first quarter of 2025 concerning both sales and earnings. While currently unprofitable, InvestingPro data shows analysts expect the company to return to profitability this year, with forecasted earnings per share of $1.67 for 2025.
DA Davidson analysts commended the company’s strategic three-pillar plan, which focuses on merchandising improvements, supply chain consolidation, and enhanced store operation efficiencies. The plan aims to achieve a 7.0% operating margin by 2027. Despite this, the firm maintained its Neutral stance, citing concerns that the weaker first quarter outlook could pose questions about the feasibility of the company’s broader strategic plan.
The $45 price target set by DA Davidson is based on a 12-times multiple of the firm’s estimated earnings per share for 2026. This valuation reflects the analysts’ view on the future financial performance of Advance Auto Parts and their expectations for the company’s earnings potential in the coming years.
In other recent news, Advance Auto Parts reported its fourth-quarter 2024 earnings, exceeding expectations with an adjusted diluted loss per share of $1.18 compared to the forecasted loss of $1.31. The company generated $2 billion in revenue, slightly surpassing the anticipated $1.93 billion. Despite these positive results, analysts from BMO Capital Markets, RBC Capital Markets, and Citi have expressed concerns about the company’s near-term challenges, leading to reductions in their price targets for Advance Auto Parts. BMO Capital lowered its target to $40, RBC Capital adjusted its target to $44, and Citi also set its target at $40, maintaining neutral or sector perform ratings.
The analysts pointed out several factors contributing to their cautious outlook, including unfavorable weather conditions, delayed tax refunds, and macroeconomic pressures affecting consumer spending. Additionally, issues such as atypical gross margin weakness and weak free cash flow projections have raised concerns about the effectiveness of the company’s turnaround strategy. Advance Auto Parts has been implementing internal measures like merchandising initiatives and supply chain improvements, but analysts suggest these benefits will likely become more apparent in the latter half of the year.
The company has confirmed its preliminary guidance for 2025, projecting net sales between $8.4 billion and $8.6 billion. However, RBC Capital revised its adjusted earnings per share forecasts downward to $1.06 and $2.57 for 2025 and 2026, respectively. Investors will be closely monitoring how Advance Auto Parts navigates these challenges and whether it can deliver on its strategic initiatives to improve its financial performance.
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